Tech disruptions are turning traditional businesses upside down
Five years ago, surfers used to speak proudly about having mobile phone internet access. Today, people have to clarify if they are using fixed broadband connections. This shift indicates the huge increase in mobile internet penetration compared to fixed line.
Nobody bothers to specify if they have bought something ‘online’ anymore. It’s no longer unusual. Everybody shops and window-shops online, since it provides more choices and better value for money. It is the default option for buying travel tickets, insurance, electronic gear, books, household appliances, clothes, etc. and for hotel bookings and food delivery. This is also why digital payments have become more popular.
Those changes in vocabulary indicate the shifts in technology usage. Mobile internet has been around for 20 years. So has online shopping. But speech patterns changed only after mobile internet hit the saturation.
Along with this, the dynamics of many other industries have also changed. A company without a social media and Internet presence is now considered prehistoric. Any business with a retail clientele takes it for granted that some proportion of its sales and almost all of its customer feedback will come online.
Another dozen technologies might be on the cusp of similar exponential growth. The next generation of “smart” appliances will be driven by disruptive technologies like Artificial Intelligence (AI), Augmented Reality and Internet of Things. All the norms of design, repair, maintenance, etc., will change along with the new-tech, which will change our daily lives in many ways.
To take some examples, your fridge might generate its own shopping list and even order groceries directly. Your car would book its own service. Your personal AI assistant would make your appointments. You might ride an autonomous electric vehicle to work, and your pizzas might be delivered by drones.
There was a time when super-investor Warren Buffett avoided buying technology stocks because he said he did not understand the IT industry and he believed that IT had short business cycles. However, there has been a huge mindset shift in the past decade. Even Buffett owns tech stocks today, namely Apple and IBM.
Today, every business is tech-reliant and therefore, every business has shorter cycles. Tech has disrupted long-established, “non-tech” sectors - consider companies like AirBnB, Uber, Ola and Netflix. These new tech-driven businesses have turned non-tech industries like entertainment, hospitality and transportation upside-down. Facebook and Google are arguably the two biggest media companies in the world since the bulk of their revenues are from advertising. Yet, they aren’t media companies at all.
It’s difficult to predict which technology will cause the next major disruption. This makes long-term investments vulnerable since businesses that cause disruptive change cannot be assessed in traditional ways. The disruptors don’t necessarily make much money, even as they grab market-share and win high valuations. Amazon is one of the world’s most valuable companies but it has a very thin profit margin ($3 billion net profits on $177bn revenues last year). Uber has lost huge sums since it launched.
Financials are important. However, the essence of disruption is in its ability to give guidance for the future. Netflix and Youtube have more or less destroyed old-style entertainment (going to the movies) and video rentals (remember how big that was?). The most important metric for a long-term investor in this brave new world is not financials. Nor is it an understanding of tech. After all, Internet Service Providers understand technology. But they don’t have the imagination to leverage that into creating a Netflix, Facebook or Google.
The key is the understanding of human psychology. Thrift, convenience, speed of delivery, quality of product, quality of service, aesthetic design - these are all needs that won’t change. New businesses will succeed and old businesses will continue to succeed only so long as they fill those needs.
The author tracks economic, behavioural and corporate tends, hoping to gauge good avenues of return